How to beat online banking fraud

As internet banking fraud rises, we explain how to protect your money from the
criminals.

Internet banking fraud is rising as criminals are using more sophisticated ways to ensnare their victims.

Figures released this week from Financial Fraud Action UK show that losses from online banking fraud have gone up by 14 per cent during 2008, which will be a worry to the millions of people who use this convenient way of managing their bank accounts.

These figures are also in stark contrast to other types of financial fraud – which have fallen across the board. Financial crime involving debit and credit cards has fallen 28 per cent in the last year while cheque fraud is down by 29 per cent.

Online banking fraud losses stood at almost £60m while the number of victims rose to 51,161 due to phishing attacks. These are emails sent by fraudsters pretending to be from your bank and asking you to log on to a website to enter your personal details. The consequences are that your login details are stored and then used by criminals to access your account.

While the number of phishing scams has shot up, so too have the number of victims, from just 1,700 in 2005.

This is inevitable given the huge rise in online banking. According to the British Bankers' Association the number of customers with online access to their bank account has doubled in five years from 16m in 2003 to more than 38m in 2008.

Many banks now offer free security software to their customers. Criminals know it is much harder to break into a bank's own system so target weaknesses in customer's computers instead.

The credit crisis has provided thieves with an excellent opportunity to increase their phishing attacks. As banks and building societies merge with one another to stay afloat they are legitimately contacting their customers telling them about these changes. So fraudsters are dressing up fake emails from banks asking you to update your personal details following mergers.

Your bank will never email you asking you to update passwords, user names and other personal details regardless of whether it has merged or been taken over.

The Lloyds Banking Group has seen its fair share of changes since the credit crisis, merging with Halifax/Bank of Scotland. It has already written to customers explaining the merger but as the two brands will remain separate no further contact has been made.

A spokesman for Lloyds said: "If you get an email from Lloyds Banking Group it will be fake as this is not a brand name – just the name of the holding company. And we're not currently emailing people about the merger either."

The best way to protect yourself from phishing scams is to think carefully about all emails you open, as just by doing this could download a virus onto your computer. This could then track the input of passwords and user names and send them back to the fraudster. Anti-virus software will alert you to such activities.

Although internet banking fraud is up 14 per cent, this rise has dramatically slowed. It was up by an incredible 132 per cent in 2008.

This slow down hopefully shows that consumers are getting wise to the tricks fraudsters use and are better at spotting fake emails. Earlier phishing attack emails were laughable in their grammatical errors and crude copying of bank' logos. But these scam emails have become more sophisticated and slicker in their presentation so are still catching people out.

But while internet fraud has risen, experts are focusing their attention on credit card crime, which still costs £440m a year.

Melanie Johnson, chair of the UK Cards Association, said: "The cards industry sees fighting fraud as a key part of keeping its customers' interests centre-stage. We are committed to a wide range of measures to ensure customers feel confident, safe and secure when they use their credit and debit cards – whether in a shop, abroad, online, at a cash machine or anywhere else."

The fall in card fraud is partly explained by the success of chip and pin making it harder for criminals to take money from your accounts.

There has also been a decrease in phone, internet and mail order shopping fraud – known as card-not-present fraud, as the retailer doesn't need to see the card when you make the transaction. One of the reasons behind this 19 per cent fall – the first time ever this type of fraud has gone down – is the growth of fraud protection initiatives by Mastercard (SecureCode) and Visa (Verified by Visa) to register your cards with them.

Visa has seen a 57 per cent fall in counterfeit fraud, skimmed and cloned cards as a result. But Valerie Dias at Visa Europe said: "We know that fraudsters will continue to attack the card system which is why it is crucial that we do not get complacent."